Lars E. O. Svensson gets it so wrong, so wrong

17 Sep, 2013 at 21:33 | Posted in Economics | 6 Comments

The increase in house loans – and house prices – in Sweden has for many years been among the steepest in the world.

Sweden’s house price boom started in mid-1990s, and looking at the development of real house prices since 1986, there are obvious reasons to be deeply worried:

Source: Statistics Sweden and own calculations

The indebtedness of the Swedish household sector has also risen to alarmingly high levels, as indicated by the figure below (based on new data published earlier this year by Statistics Sweden, showing the development of household debts/disposable income 1990 – 2012):

Source: Statistics Sweden and own calculations

As a result yours truly has been trying to argue with “very serious people” that it’s really high time to “take away the punch bowl.”

Lars E. O. Svensson — former deputy governor of the Swedish Riksbank — now argues in a recent article that there is no reason to be worried about the indebtedness of the Swedish household sector since he has noted that (emphasis added)

the households on average have very strong balance sheets

Hmm …

I think maybe Svensson should take a look at the book  The Flaw of Averages by Sam Savage, explaining why average assumptions on average are wrong …



  1. @ Romulus
    I was born in Sweden but I live in Switzerland and would argue that construction costs are around twice as high in Switzerland than in Sweden. Houses most definitely are more than twice as high in Switzerland than in Sweden. I also have a summer home in Bealieu, close to Nice. There prices are definitely higher than in Stockholm for instance. My best friend has a house in Munich. Again, prices are definitely higher than in Stockholm. Don’t even mention London, Paris, etc.

    I think that it’s a myth that prices should be specifically high in Sweden. On the contrary, it seems that in comparison with other European countries, both prices and construction costs does not stand out as excessive. Affordability is even better than it historically has been, leaving some upside to prices on the table…

    @ Jan Milch
    You argue that the richest 10% holds 80-90% of all the assets and that this fact may pose a problem in the event of a crisis.
    Remember that banks prefer to lend to those who doesn’t need the loan…
    In fact; the ones with the highest absolute debt levels are also the ones with the highest absolute asset levels and the highest incomes. Why is this a problem for the banking sector? Maybe it’s a political issue, but it shouldn’t be an issue affecting banking regulation or leading to a tighter monetary policy.

  2. Monsieurbagehot,

    You pose a good question. Coincidentally a blog post was published in the UK in the last 24 hours showing similar house price increases over the last 20 years or so. See:

    So looks like there is some common factor that explains house price increases in Sweden and the UK. But what is it?

  3. @ monsieurbagehot: Cartels? Oligopol? Dense legislation? The question you pose is relevant; why are not companies rushing to fill the market need as they are in other market segments?

    btw construction costs in sweden are the highest in europe.

  4. Do Lars E.O Svensson mean it´s not that relevant that the richest 20% hold about 80 to 90% of assets, while the median savings is about 75 000 SEK as long as the average lies round about,the 800 000 SEK as SCB figured out?The distribution don´t matter, it all cancel out?
    Lets look at the stats and let´s judge by your self.

    Menar Lars E.O Svensson att de inte det ha inte någon betydelse att de 20% rikaste innehar 80 – 90% av tillgångarna, och medianen ligger på ca 75 000 kronor i sparkapital,bara medelvärdet hamnar på de cirka 800 000 kr som SCB räknat ut?
    Här är lite statistik:

    Fördelning av sparkapitalet
    och befolkningen i procent
    (Distribution of savings capital
    and the population as a percentage)

    Likvida tillgångar
    och skulderna
    (Liquid assets
    and liabilities)

    Likvida tillgångar
    och skulderna

    Tillgångarna inklusive
    illikvida tillgångar
    (Assets including
    illiquid assets)

    Valueguard-KTH:s HOXSWE-index
    och SEB:s boprisindikator

    (Valueguard-KTH HOXSWE index
    and SEB’s house price indicator)

    Fördelning av sparkapitalet
    och befolkningen i procent
    (Distribution of savings capital
    and the population as a percentage)

  5. But still; house prices in Sweden are quite cheap compared to both construction costs and affordability.

    In many other European countries house prices are much higher and you get less “value for money” in terms of price per square meter, plot size, quality of construction, etc.

    If you believe that house prices are high, why is the level of new construction so low? Builders, entrepreneurs, etc. should be rushing to build to profit from the “high prices”. Why aren’t you engaged in development projects yourself if prices are so high? You could make a killing…

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